It is clear that HMRC’s performance cannot yet be considered as sufficiently competent to wield an unchecked power this strong.

And:

The lack of checks and balances could create problems for citizens.

And:

We are not persuaded that the rights… of the vulnerable… are sufficiently protected.

Admirable stuff, you may think. And, should anyone be unkind enough to suggest a touch of ‘pot’ and ‘kettle’ about Banks criticising HMRC’s competence, well, that would merely highlight the BBA’s bravery in taking this principled stance in the public interest.

But pause for a moment. Why might the BBA speak out publicly on such a matter: its ‘News’ page is not heavy with statements made in the public interest?

But HM Treasury’s Consultation Document might. Buried away on page 19, in the “Assessment of Impacts” one finds this statement:

Deposit-takers will be required to provide information to HMRC and deduct and transfer sums from customers’ accounts to HMRC, which may carry an associated cost.

In other words, the cost of operating the proposals will fall, in good part, upon the banks.

Now, the proposals face remarkably widespread and heterodox opposition: Liberty, most of the Professional Institutes, the Treasury Select Committee, and almost all of the tax profession have come out against. And now the banks too. The proposals are – one or two Canutian souls excepted – universally disliked. So no real complaint can be made about the substance of the banks’ criticism which is carefully modulated and reflects concerns expressed by others.

But for the banks to speak out, purportedly in the public interest, but keeping quiet about their own?

I have on my desk an Opinion – a piece of formal tax advice – from a prominent QC at the Tax Bar. In it, he expresses a view on the law that is so far removed from legal reality that I do not believe he can genuinely hold the view he says he has. At best he is incompetent. But at worst, he is criminally fraudulent: he is obtaining his fee by deception. And this is not the first such Opinion I have seen. Such pass my desk All The Time.

The “he” in question, I shall not name. But the brief description in the above paragraph will be sufficient to enable that part of the tax profession that regularly uses tax Counsel to narrow the possibilities down to slightly under half a dozen names. These are the Boys Who Won’t Say No – the “Boys” for short – and we all know who they are.

Assume you are a seller of tax planning ideas – a “House”. You have developed a planning idea that you wish to sell to taxpayers. But your customers will typically want independent corroboration – from a member of the Bar – that your idea ‘works’, that is to say that it delivers a beneficial tax treatment. Or, to use the preferred euphemism, that it ‘mitigates’ your tax liability.

The fees that can be generated from bringing a planning idea to market are substantial: I am aware of instances where a single planning idea has generated fees of about £100 million pounds for the House. But without barrister sign-off, you have nothing to sell.

This fact creates predictable temptations for the Bar. If you are prepared to sign off a planning idea, the House will pay you handsomely. In some instances hundreds of thousands of pounds for a few day’s work. But the tax code is not made of swiss cheese. Planning ideas that actually deliver are rare. Their supply is constrained – constrained far beyond demand.

All of this is trite.

It is what happens if you allow your independence to be swayed by your desire to collect the fee that I wish to explore. And the answer is, not enough.

Assume that you are one of the Boys. You write an Opinion of the type I have sitting on my desk. You collect your large fee – and you establish yourself in the mind of the House as an accommodative sort of professional. The sort of chap they might like to come see again in the future.

What happens next?

The House will then go out and sell that idea to taxpayers. In the case of individual taxpayers, they will sell it, typically, through IFAs to whom they will pay a sales commission.That sales commission, too, can be very substantial, running in some cases into hundreds of thousands of pounds for a single client. So the IFA can be strongly incentivised to persuade their clients that the idea works and – should the taxpayer client care about such things – that it is not aggressive tax planning.

And then? The archetypal case looks like this. The taxpayer will make their tax return, HMRC will disallow the beneficial tax treatment, and the taxpayer will challenge that disallowance in the tax tribunal (causing years of uncertainty and substantial professional fees). Should that challenge fail, the taxpayer will lose whatever money he put into the idea, face an unexpected tax charge and, very often, be publicly pilloried into the bargain.

Some especially sophisticated or well advised taxpayers will see this coming. They may feel the game is worth the candle. But one should not pretend that there is no (sizeable) rump of taxpayers who have no way of knowing what lies in store. I have written in more detail about the situation of individuals participating here and here. That many feel aggrieved at their treatment – eg Katie Melua and Gary Barlow – is clear. And that some of those pilloried as tax avoiders have been mis-sold to is, to me, beyond question.

Where do the controls lie? What stops the IFAs and the Boys from banking, uninhibited, their fat fees for bad advice?

The IFA, having a direct contractual relationship with the client, can be sued for negligence or mis-selling. But the Boy? What of him?

Barristers are, of course, regulated by the Bar Standards Board. But their duties, by and large, they owe to their client (in the example above, the House) – not to third parties (in my example the taxpayers). This is true both of their regulatory duties and of their contractual ones: it’s not easy for a barrister to be sued otherwise than by the party to whom he gave his advice.

And when the barrister is sued, he benefits from a mutual insurance fund. All barristers contribute to the fund from which the first £2.5m of any claim against a barrister is paid. If claims are made against the fund, premiums rise to fund those claims. But because the fund is a mutual, those premiums rise for all – not just the person responsible for making the claim. So the practice of the Boy is subsidised by the rest of the bar. He picks up his large cheques for giving advice he cannot believe to be right – and his insurance premiums rise no more than mine.

So when I talk in the title to this Blog of Weak Transmission Mechanisms, it is this that I mean. The mechanisms that transfer tax risk from those who bear it to those that should are too weak.

Those that bear it are the individuals in my example above. As I have said, in many cases they have no way of knowing whether they are engaging in ‘good’ or ‘bad’ tax planning. And yet they bear all the risk. Those who should bear it – at least share it – are the Boys. They grow rich saying yes when no one is better placed than them to know they should say no.

But sadly tax is no exception to the general rule that risk rolls downhill and falls on the guy at the bottom.

What is to be done?

A solution that seems to me to have its attractions is to place on UK barristers (and other tax advisers) a similar obligation to that placed on tax advisers in the US by IRS Circular 230, §10.37(a)(2). Written tax advice must not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others, and it must consider all relevant facts and law. Where written advice does not meet those standards, the practitioner would face direct financial penalties. He might then have better reason to Say No.

I do not claim expertise in the operation on the ground of that Circular. And nor do I wish to advance policy making on the hoof: plainly the experience in the US of the operation of the Circular has been mixed. It is beyond the scope of this Blog to conduct an in-depth review of its operation, and what lessons the UK authorities might learn. But the principle seems to me to be sound.

(A further solution – one that I have not foreshadowed in this Blog – might be to adopt a new drafting technique for tax reliefs that sought to explain in terms intelligible to a reasonably interested non-professional what obtaining that relief involved. Such a technique would be designed to shrink the size of my ‘sizeable rump’. If you then chose to take a punt, at least you would be doing it with your eyes wide open).

Most of my colleagues at the Revenue Bar act properly and scrupulously. But it saddens me that a number – whose names are well known to us all – do not. Their behaviour makes victims of the general body of taxpayers whose tax take is reduced (I have explained here how even schemes that don’t work cause a loss of tax). It makes victims of those taxpayers who are mis-sold to. And it besmirches my profession.